Why P&G is planning to cut $500m of agency costs

Procter & Gamble is planning to reduce its ad spend by $1bn or so this year, including cuts of up to $500m in agency fees.

Global brand director Marc Pritchard (left) also says that this will involve reviewing some of its agencies and that he’s also open to working with bespoke units – like the ones pioneered by WPP – in holding companies.

P&G, under CEO Alan Lafley who’s returned to the company, is cutting its number of brands down to 65 and its various agencies – which at one time reached a mind-numbing 2500 – along the way.

The company spemds around $9bn on advertising, up $2bn over the past five years. Sales have grown by $10bn in that period so spending 20 per cent of them on advertising is steep, to put it mildly. The main reason proffered by Pritchard is the rise of digital media and the need to employ more agencies and spend more to reach a fragmenting audience. P&G, like other big clients, is likely to demand that its major agencies produce more digital work themselves, even chuck some of it into the mix for free.

In theory such consolidation should create opportunities for the various holding companies at P&G but they have most of the business anyway. Publicis Groupe has the biggest share with WPP’s Grey network also a significant player.

But P&G has worked with Wieden+Kennedy on a number of major of projects over the past decade, including the much-lauded Old Spice campaign plus corporate work and Pritchard says he wants to keep the best creative talent on his business.